You are the accountant and tax adviser to Hilary Haller who owns a business comprising four shops specialising in selling a wide range of organic fruit, vegetables and cereals as well as some processed foods and confectionary. Hilary Haller has asked you to advise her on her VAT position. She tells you that she has not registered for VAT yet as her standard rated supplies are significantly below the annual VAT limit of 85,000. The information for the four shops is shown below. It is important to note that in your discussion with Hilary Haller you discover that the figures recorded for sales (and shown below) do not include any VAT- even on the standard rated items. Hilary Haller confirmed in answer to your question that customers were charged for the VAT on the standard rated items. By contrast the figures shown for purchases do include the VAT (gross of VAT figures are shown below therefore). Sales Excluding VAT Zero rated foods Total Shop A Shop B Shop C Shop D 100,000 23,000 27,000 18,000 32,000 Standard Rated Items 70,000 30,000 12,000 15,000 13,000 Total 170,000 Purchases Goods for resale Zero rated foods 50,000 Standard Rated Items 18,000 Other purchases Delivery Van 30,000 Required: Write a letter to your client, Hilary Haller. In your letter you should advise Hilary Haller of the following: a) The overall VAT position including an explanation of the relevant VAT rules, how Hilary Haller should account for VAT on zero rated and standard rated items and how to communicate with HMRC in the future. (15 marks) b) Calculate the VAT payable or recoverable as the case may be - ensure that you show a clear summary with detailed workings included in an appendix to your letter. Remember that marks will be awarded for style and presentation. (10 marks) (25 marks) RELIEFS AND ALLOWANCES-2020/21 and 2019/20 (2018/19) Income Tax - Personal reliefs and allowances Personal Allowance 12,500 (11,850) Income Tax - Taxable bands are as follows: Basic Rate 20% Higher Rate 40% Additional Rate 45% 0-37,500 (0-34,500) 37,501-150,000 (34,501 - 150,000) over 150,000 (over 150,000) Corporation Tax-rates and allowances Main rate of corporation tax 19% (19%) Capital Gains Tax-rates and allowances Standard rate (assets excluding residential property) 10% (18%) Standard rate (residential property) 18% (18%) Higher rate (assets excluding residential property) 20% (28%) Higher rate (residential property) 28% (28%) Business Asset Disposal relief rate 10% (10%) Business Asset Disposal relief lifetime limit (Note 1): 1,000,000 (10 ma) (10 mo) Annual Exempt Amount (Note 1) 12,300 (12,000) (11,700) Note 1: this shows limit/amount for 2020/21 and previous two tax years Continued on next page (National Insurance Contributions and VAT)....... National Insurance Contributions 2020/21 (2019/20) (2018/19) (extracts) Employer Employee Class 1 Weekly earnings / Annual Nil 0-169(166) (162)/8,788 (8,632)(8,424) 0-183(166) (162)/9,500(8,632)(8,424) 169.01-962(962)(892)/50,000(46,350) 183.01- 962(962)(892)/50,000(46,350) Over 962(962)(892)over 50,000 (46,350) SEE BELOW SEE ABOVE Nil 13.8% (13.8%) SEE BELOW SEE ABOVE 12% (12%) 13.8% (13.8%) 2% (2%) Class 2 Small earnings exception Normal rate 6,475 (6,365) (6,205) 3.05 (3.00) (2.95) per week Class 3 See note below. Class 4 Profits 9,500(8,632) - 50.000 (8,424 - 46,350) Profits over 50,000 (50,000) (46,350) 9% (9%) 2% (2%) Note: Class 3 contributions are voluntary contributions paid by people who wish to protect their entitlement to the State Pension and who do not pay enough National Insurance contributions in another class. VAT (NO CHANGE IN 2020/21 FROM 2019/20 or after 1 April 2020) After 1 April 2019 After 1 April 2018 Standard rate 20% 20% 85,000 Annual Registration Limit De-registration Limit 85,000 83,000 1,350,000 83,000 1,350,000 Cash Acc Scheme - max to to join Annual Acc Scheme -max to to join Optional Flat Rate Scheme - 1,350,000 1,350,000 Max taxable turnover (to) (ex VAT) 150,000 150,000